Thread by @SwissRamble

Parachute payments are made to clubs relegated from the Premier League in order to soften the blow of the significant reduction in revenue in the Championship, especially as many players’ wages remain at a high level. The following thread looks at how these payments work.

It is evident that parachutes have a major impact on the competitive balance in the Championship, as the 6 clubs with the highest revenue in 2016/17 all benefited from these payments, most notably the 3 relegated the previous season: #NUFC £86m, #NCFC £75m & #AVFC £74m.

Eight Championship clubs received Premier League parachute payments in 2016/17 with #NUFC, #AVFC and #NCFC getting £41m (up from £26m in 2015/16 thanks to the new TV deal), followed by #QPR £31m, then #CardiffCity, #FFC, #Royals & #WAFC, all £16m.

If parachute payments were excluded, the same 3 clubs would still have the highest revenue (#NUFC, £49m, #NCFC £39m and #AVFC £37m), but different clubs would fill the next 3 places: #LUFC £34m, #BHAFC £29m and #DCFC £29m – plus the gap would be much smaller.

Although the Premier League solidarity payment rose from £2.3m to £4.3m in 2016/17, most Championship clubs only receive £7-8m TV money (including £2.3m distribution from EFL). Clubs that receive parachute payments do not receive solidarity payments as well.

Clubs relegated from the Premier League now receive £91m over 3 years. If a club is promoted in this period (like #NUFC in 16/17), it forfeits any further parachute payments. Total parachutes in 17/18 were £243m (8 clubs), rising to an estimated £274m (9 clubs) in 18/19.

Parachute payments are calculated relative to Premier League equal share: year 1 – 55%, year 2 – 45%, year 3 – 20%. If a club is relegated after only one season in the top flight, it is only entitled to 2 years of payments, so £74m instead of £89m in 2016/17.

In 2016/17 the Premier League equal share amounted to £74.4m, split between the domestic UK deal £35.3m and the overseas deal £39.1m. It excludes merit payment (based on finishing position), facility fees (based on number of times a club broadcast live) and commercial revenue.

It is worth noting that the parachute payments for clubs relegated in earlier seasons can change in line with any updated TV deal. In this way #AVFC and #NCFC received £34.0m in their second year, compared to the £33.5m originally calculated in 2016/17.

Up to 2015/16 relegated clubs received 4 years parachute payments, amounting to £68m: year 1 – £26m (55%), year 2 – £21m (45%), year 3 – £11m (25%), year 4 – £11m (25%). However, £2.3m (equivalent to the solidarity payment) was deducted from gross calculation to give net amount.

The higher TV deal in 2016/17 has benefited clubs relegated in previous seasons. For example, #QPR actually got more in their second year after relegation (£31.2m) than their first year (£25.9m), while they get £16.6m in each of years 3 and 4, compared to the original £10.5m.

Parachute payments for 17/18 show that relegated clubs will receive £91m over 3 years: year 1 – £42m, year 2 – £34m, year 3 – £15m. This is the case for #SAFC, even after further drop to League One, but #HCAFC & #Boro only get £76m, as they were relegated after one season in PL.

If a club is promoted to the Premier League, it will receive a minimum of £170m TV money, even if immediately relegated: £95m for last place in PL plus £76m parachute payments. This helps explain why so many Championship clubs “go for it”, as the rewards are so lucrative.

The argument in favour of parachute payments is that they encourage promoted clubs to invest to compete, safe in the knowledge that if they are relegated, then there is a safety net. However, they do undoubtedly create a huge revenue disadvantage for other Championship clubs.